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The Priority for Payment of Estate Debts Can Be Complicated

shutterstock_199873709-300x200When an executor or administrator is appointed to settle an estate, there are many tasks which need to be accomplished.  Among the most basic fiduciary duties is the collection of assets and the resolution or payment of the decedent’s debts and monetary obligations.  The New York Probate Lawyer Blog discusses many of these matters in numerous posts.

While the payment of debts may seem rather routine, the process can be very difficult.  To begin with, the estate representative must identify the debts and obligations which exist.  These may include credit card or other credit obligations such as mortgages, car loans, stock margin accounts, home equity or other lines of credit.  These types of items may be easy to discover and to determine the extent of a claim since there are typically periodic account statements sent showing the outstanding balance.

In many cases the decedent’s obligations may be more difficult to discern and quantify.  There may be business debts or obligations to third parties involved in business transactions which are reflected in various agreements which are not apparent without a careful review of the decedent’s records.  Obligations may also exist as a result of a past divorce or matrimonial pre-nuptial or settlement agreement.  Such obligations may be binding upon a decedent’s estate as to future payouts or result in claims due to the decedent’s failure to make past due payments.

Another area of concern may relate to taxes, particularly income taxes which a decedent did not file or pay for past years.  Executors and administrators may need to research a decedent’s tax history to figure out any liability which the estate may be responsible for.  Needless to say, the representative of an estate has a significant job of insuring that an estate’s creditor obligations are settled and satisfied before distributions are made to estate beneficiaries.

Even after figuring out an estate’s liability, problems may arise if the estate does not have enough assets to fully satisfy all of the outstanding obligations.  Article 18 of the Surrogate’s Court Procedure Act (SCPA) entitled “Claims, payment of debts and funeral expenses” provides a number of statutory sections dealing with these issues. In particular, SCPA Section 1811 entitled “Payment of debts and funeral expenses,” sets forth a statutory list of priority which is to be followed with regard to the payment of claims and debts.  The statute directs that a fiduciary must be diligent to satisfy these items.  Interestingly, the payment of funeral expenses takes priority over all debts and claims.

A recent Queens estate case decided by Queens Surrogate Peter Kelly on May 20, 2021 entitled Matter of Solomon, concerned the priority of payment of a decedent’s debts.  In Solomon, the Queens Public Administrator had sought a judicial settlement of its accounting.  A mortgage creditor had objected to a referee’s report which did not give priority to the payment of the mortgage debt.  The Court reviewed the facts as well as SCPA 1811 and found that the referee had properly followed the priority guidelines provided by SCPA 1811.

Administering an estate can be a very complicated endeavor.  A fiduciary may incur personal liability if a decedent’s debts and obligations are not fully and properly satisfied.  I have represented Executors, Administrators, Guardians and Trustees and beneficiaries in estate settlement and accounting matters throughout the state.  Call Me Now for a free confidential review of your estate or guardianship issue.  We offer reasonable and flexible fee arrangements and personal representation.

New York Trusts and Estates Attorney Jules Martin Haas has helped many clients over the past 40 years resolve issues relating to guardianship and probate and estate settlement throughout New York City including the Bronx, Queens, Brooklyn, Manhattan, Nassau and Suffolk County.  If you or someone you know has any questions regarding these matters, please contact me at (212) 355-2575 for an initial free consultation.

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